Hawaii Resort Condos – Can You Cover Your Costs of Ownership by Rental Income?
The question of covering ownership costs by rental income is a common one for second home buyers as well as investors.
When I speak with clients in terms of “covering costs” for an investment, my response is nearly always the same; if you choose to rent your property, you will most likely recoup the taxes, insurance, HOA, and utilities if you paid cash for your property.
You will not be able to cover debt service in full, but likely a portion depending on the sales price, loan amount, and schedule of your own use. Meaning that if you choose to occupy your property in prime rental season (Nov 15 – April 15th), you will not be maximizing the income, of course.
The slow times for the rental would be Sept 1 – Nov 15th & the month of May.
The good news is that you would be buying a vacation property for yourself, or an investment property with help paying for it by rentals, in an obvious inclining market.
Estimated Expenses (Monthly)
Let’s take an example I recently provided for a client on a Waiulaula Ridge unit at Mauna Kea with a sales price of $1.250M with loan of 60% or $750k:
Loan: $3,690 (based on 4.25% 30 yr loan per recent rate sheets)
Taxes: $620 (from actual tax rolls)
Utilities: $500 (estimate provided by owner/client)
Social mbr: $667 (silver level)
Total mo est.: $7,277
The average income provided by the seller for this particular property was $100,000. At 75% (less prop mgr fee), your monthly net income would be approx. $6,250.
Please note I am using estimates and cannot guarantee any income amount, or that expenses will not surpass the estimates above. This exercise is for purposes of determining a rough estimate for affordability or return on the investment. Occupancy and income information should be obtained from either the sellers of each unit (if they rent), or by survey of available management companies.
We can relay information, of course, but are not involved directly in providing estimated income or occupancy. A good source to check is actually the VRBO.com site. This will give you an idea of the rates individual owners are charging and also give you a look at their calendars. (Note, however, that some people block out their calendars also for their own use, so this is just another source and not to be relied upon solely.)
Insurance for the maintenance and repairs of the buildings, grounds, and common areas is covered by the HOA fees. You would likely want to purchase coverage for your interior components and personal belongings, which will cost you approx. $500 per year. I suggest you speak with the same insurance company that the association uses so as not to double up any coverage/expense.
Other Factors to Consider
There are many factors involved in purchasing an investment property aside from the price. Wind, views, sunsets, proximity to amenities, and of course, noise are just a few of the factors that should be considered in addition to the size, quality, and location of a property.
The location of a condominium is important to you, both as rental and resale. Some buyers prefer a ground floor for easy access; others second story for optimal views.
If you are purchasing a property with an established clientele, and the bookings are part of the negotiations, it will be easier to maintain the income rather than starting a new clientele. However, if you are looking to purchase in a resort, such as my example demonstrates, the history for rentals is somewhat more simple to obtain and most property managers will be happy to take on the listings to their inventory.
A Good Realtor is Invaluable
We know the location of each building within a resort, the quality of construction, amenities available, layout of each unit, and what is covered in the homeowners for each complex, not to mention, which allow pets, whether or not a golf cart is allowed in the development, and who charges membership fees to use the resort grounds – and who has the best golf courses!
Living and loving my resort life!